I'm Matt Schifrin vice president and managing editor of Investing for Forbes Media. I have worked for Forbes for more than 25 years and learned business journalism under Forbes’ late great editor Jim Michaels. For the first 15 years of my career, I wrote mostly investigative features but now I am responsible for investing and finance content in Forbes Magazine and on Forbes.com. I'm also editor in charge of Forbes Newsletter Group and Forbes iConferences and I used to run Forbes Best Of The Web. I won a SABEW award in 2012 and a MIN Best of The Web award in 2009. My book, The Warren Buffetts Next Door, The World's Greatest Investor You've Never Heard Of was published in 2011. I am a graduate of Cornell University.

Jamie Dimon's Folly: Shareholders Over Customers

There has been an avalanche of press around JPMorgan Chase‘s $2 billion “hedging” loss. Yesterday morning a New York Times reporter quoted Jamie Dimon responding to a question about how they were going to deal with the multi-billion dollar bad trade sitting on their books by saying “We are going to manage it to maximize economic value for shareholders.”

Ah, the “maximizing shareholder value” mantra. It comes right out of the CEO handbook. But is maximizing shareholder value the best objective for a government-backed bank? I think it may be at the heart of what got JPMorgan Chase and our entire banking industry into trouble in the first place.

Dimon’s quote reminded me of an excellent video I watched a few months ago in which Bill Moyers was interviewing John Reed, former CEO and chairman of Citibank, about the financial crisis. Reed is an old school banker. In the early 1980s I was a Citibank summer intern and I met John Reed at a luncheon at headquarters on 399 Park Avenue in New York. At the time, MIT-educated Reed was in the running to succeed one of the greatest bankers ever, Citibank Chairman Walter Wriston.

I have embedded the Moyers/Reed interview video below and I urge you to watch the entire segment. The most telling part is 8 minutes and 28 seconds in. Here is what Reed told Moyers about “shareholder value” as he explained the changes that have taken place in banking over the last few decades.

“This idea of shareholder value came into being. I never heard of shareholder value until the 1990s. It was customers, customers, customers. How are the customers? Are we doing well or are we losing place with the customers and all of a sudden, and Sandy was a total proponent, Sandy Weill, his whole life was to accumulate money. He said “John we could be so rich.” Being rich never crossed my mind as an objective. I was almost embarrassed that somebody would say it out loud… The biggest bonus I had ever received when I was at Citi was $3 million. The first year I worked with Sandy (as co-CEO) it was $15 million. I said to the Board, I am the same guy doing the same job, at the same company, the company is bigger, but there are two of us. What is going on? They said ” you don’t understand.”

No doubt the Board member talking to Reed was referring to the new culture that was taking over Citi. It was the culture of Wall Street, of firms like Bear Stearns and Lehman Brothers, Goldman Sachs and Merrill Lynch. The old Citibank of the Wriston days was undergoing metamorphosis. Its customer first approach was being replaced by one where risk, profit and greed were the drivers.

After all who seeks careers on Wall Street? People who want to get rich. There are no pretenses. I have friend who is a Ph.D. in physics. He readily admits that the only reason he works on Wall Street today is for the money.

On Wall Street you learn to sell, sell, sell, or trade, or create products that will make the firm money, and you eat what you kill. In the old days, the idea was to enrich the partnership, now as Dimon points out, it’s the shareholders. That is what proprietary trading is all about. Make big profits, get bonuses and your stock goes up…maximize shareholder value. Hedging? That’s for woosies, not Wall Streeters.

This may be one of the biggest problems with banking today. I would argue that the most successful companies in the world are not shareholder focused but rather customer focused. Did Steve Jobs ever obsess over shareholder value or Apple’s stock price? No, he obsessed over things like customer experience and over creating products that people would demand in droves.

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Great article!!! Shareholder Value is a rationale whereby the management of a company can screw the owners of a company out of both the profits and the intrinsic value of the company. It fosters short term thinking, greed, fraudulent accounting and all manner of bad behaviors. It is a primary justification for out-sourcing on one hand, and “compensation committees” on the other. It sacrifices the customer, the nation and the greatest good on the alter of greed and corruption. It has corrupted the Robert’s supreme court, congress and the presidency. It is the ideal and set of ideas that brought the economic world to its knees and ended the American dream. A Pox on Shareholder Value and the criminals who hide behind it.

“Being rich never crossed my mind as an objective. I was almost embarrassed that somebody would say it out loud… The biggest bonus I had ever received when I was at Citi was $3 million.”

Really? Would LOVE to know his definition of “rich.” Most Americans will not make $3 million total in their lifetime. Many of us would quite our jobs and retire content if we made a $3 million bonus. I’m sorry. If you’re making $3 million bonuses, you’re one of them, even if you do believe you’re acting ethically.

I believe he’s saying that being rich never crossed his mind as an objective because he was already “rich”. The man was embarrassed that someone could be so greedy that they wouldn’t consider themselves being rich already and instead sought to make even money at the potential expense of the customers.

Seems to me that shareholder value and customer satisfaction fit hand in glove over the long term. Where companies, not just banks, seem to get themselves in trouble is trying to make sure they hit quarterly numbers and losing sight of the bigger picture.

In a world where much of the trading volume is agnostic to fundamentals companies would be better-served to pay more than just lip service to the concept of managing for the long term.

Yes shareholder value and customer satisfaction should fit hand in glove, however I think successful CEOs would argue that if you serve customers well, as your first priority, the shareholder value thing will take care of itself. Obsessing over stock valuations or bonuses isn’t really the point, unless of course you work for Goldman or maybe JPM.